Globalization and Neoliberalism
It is well known that globalization is not a new phenomenon unique to the present time and researchers trace it having occurred even in the ancient times. The first phase of globalization in the modern times is said to have occurred during the mid-nineteenth century till the period of commencement of World War I. Since post-World War II, it has occurred in phases, the current one having begun since the early 1980s or thereabouts (see, e.g., Verde 2017; WTO 2008). The current phase of globalization engineered by significant and even fantastic changes in the world of transport, communications and technology has redefined the dynamics in various segments of economy, society and polity, among others (UNCTAD 2017). Globalization involves integration of markets such as product, capital, and financial and ensures free movement of capital and goods, services, and technology. Profound and even historic and seismic changes like the fall of the Berlin Wall, the collapse of the Soviet Bloc, radical economic reforms in the erstwhile Communistic China, etc., have also significantly impacted the character of the globalization processes.
It is well documented that at the global level since the early 1980s to 2010s global trade grew faster than global income but thanks to crises world trade has been showing signs of slowing down in recent years (see various reports of UNCTAD; Stephan 2016; The Economist 2016). At the same time, growth of foreign investment was much faster than global trade (UNCTAD 2000), but global investment has met the same fate as did trade as FDI (foreign direct investment) declined during 2016 and 2017 (see UNCTAD 2017). The emergence and growth of the transnational corporations (TNCs) are seen to be a unique feature of the current phase of globalization (see Sklair 2002; Yeung 2009) as they drive primarily foreign investment exports (Buckley 2010) and have hugely contributed to the emergence and growth of GPNs (global production networks). The TNCs through GPNs seek to become more global in their scale and scope of operations (Yeung 2009). They are driving globalization as never before (see Janardhan, Jha in this book).
Globalization has led to rearrangement of institutions, processes and policies in a country on the basis of neoliberal ideas. Neoliberal ideas are based on ‘market fundamentalism’. Market fundamentalism (also known as neoliberalism) argues that market is the only solution to economic problems about demand, employment, consumption, price and efficiency (Turner 2017; see also Harriss in this book). In other words, the common and fundamental characteristic of these ideas is that market forces are efficient mechanisms for organizing economic activities in both domestic and external fronts as opposed to the state or any other agency. Free market economy is based on two constructs, viz. competition and freedom. Competition of course is the essence of capitalism as it is founded on market economic system (Kotz 2000). Neoliberalism seeks to liberate ‘individual entrepreneurial freedoms and skills’ within an institutional framework characterized by strong private property rights, free markets and free trade (see Harvey 2007; Altvater 2008). Free trade and free movement of capital (FDI and foreign portfolio investment) are two pillars of the external economy that drives globalization. They assure benevolent outcomes to the sending and receiving economies, and in the case of receiving countries, the benefits include increased choices to customers, enhanced productivity, critical additions to total investment in an economy among others, access to technology, new managerial perspectives, etc. (see Suresh and Nagi Reddy 2018; WTO 2008 for a good summary of the debate on free trade and FDI).
The role of the government according to this perspective is to aid efficient functioning of market and deliver goods and services (public goods) that cannot be provided by market (market failures). It cannot do more than as greater state intervention is antithetical to market fundamentalism. As Harriss writes in this book ‘…the idea of the State as defending the needs of society against the dictates of the market is fundamentally opposed to the principles and the values of neoliberalism’. State especially in democratic societies will be influenced even adversely by the pressure groups, and it may act in a manner that may lead to inefficient functioning of the market (Harvey 2007). Globalization embodies the principles of neoliberalism which exert considerable pressures on the state to introduce market-oriented policies and extend incentives to business to increase competitiveness (Watanabe 2015). It is important to note that the sweep of neoliberalism is wide enough to affect economic and labour policies even in emerging (e.g. Latin American countries and India in Asia) and transition countries (see Roman and Arregui 2001; Cope 2014).
Globalization, Neoliberalism and Labour: Power of Ideas and Institutions
In the list of the prime movers of globalization, we contend that ‘ideas’ or ‘perspectives’ have wielded tremendous influence over the ‘actors’ or the ‘institutions’ in the industrial relations system (IRS). Neoliberalism has been the dominant perspective or a discourse that has guided and even influenced the policy making (Munck 2005) and in turn the role and place of labour institutions in the IRS. We need to understand the ideas that are packaged under neoliberalism, especially towards labour market and the principal mechanisms through which neoliberal ideas have influenced policy making.
Development thinking has been changed by the Washington Consensus (WC), and it has reset the role of labour in economic development in the context of globalization. The WC and its refined Post-Washington version (PWC) provide functional frameworks of neoliberalism which have been used by global financial institutions like the International Monetary Fund (IMF) and the World Bank (shortly global financial institutions, GFIs) to usher in changes in the economy in many countries. It is instructive to take note of its basic aspects. WC propagates a set of economic policy actions such as macroeconomic stability via fiscal conservatism, reduction in government spending, trade liberalization in terms of removal of quantitative restrictions with controlled tariffs, foreign investment liberalization, privatization and deregulation of labour market, among others. These have become the guide-tools of policy actions by GFIs like the structural adjustment programmes (SAPs) (see Ramirez 2003, for an elaborate discussion of both the propositions; see also Van Waeyenberge et al. 2011). Joseph Stiglitz criticized WC as ‘at best incomplete and at worst misguided’ and called for a more holistic and broad-based approach to development (quoted in Van Waeyenberge et al. 2011). The PWC sought to correct the excessive reliance by WC on the market forces and its stand of seeing market and state as incompatible agents. However, PWC also stands for strengthening of market as it argued for state intervention to correct market failures and also enable the possible partnership between state and market (hence the emergence of public–private partnership model). So post-PWC also, markets remain the core of the advocacies of GFIs and hence some see PWC as a refined if not rhetoric continuation of WC and a new phase in neoliberalism (Van Waeyenberge et al. 2011).
One of the major tools of GFIs to implement the charter of neoliberalism has been the SAP (Emeagwali 2011; Mezzadri 2010). Based on WC, the GFIs imposed SAP with conditionalities on the recipient countries and the conditionalities are based on the aforementioned basic premises of WC. With regard to labour market, they include, among others, downsizing of government employment, privatization of government-owned enterprises, active promotion of flexible labour markets with attendant features like hire and fire, wage flexibility, wage dispersion, pension reforms, etc. (see Lloyd and Weissman 2002; Easterly 2003; Mezzadri 2010). These agencies claimed that the SAPs would generate economic growth, promote investment, create jobs and alleviate poverty in loan-recipient countries which are mostly poor and developing countries.
At the same time, the Organization for Economic Cooperation and Development (OECD) has been arguing that labour regulatory institutions such as labour laws (principally the employment protection laws, EPL), trade unions and collective bargaining introduce ‘rigidities’ in the working of free labour market as these critically affect the freedom of the employers to respond to the market forces to change the number and composition of employment or skills arrangement in firms or the labour compensation packages, among others (see OECD 1994). It is immediately obvious that the OECD’s advocacy is not different from those of the GFIs. Hence, all these organizations have called for a complete deregulation of labour market which will allow or bring back the play of market forces in the determination of employment and wages among other aspects concerning labour. The neoliberal perspective has strongly advocated and even pushed for a flexible labour market, a comprehensive term encompassing numerical, wage, functional, job and other forms of flexibilities and weakening of collective labour institutions (see Coates 1999; Standing 2011). The threat behind this advocacy is far more alarming: if governments did not flexibilize labour market, business will shift to regions/countries which offer cheap and flexible labour, and this will affect not only employment but also growth and poverty reduction adversely in the poor and developing countries (ibid.).
Several commentators have criticized the role of GFIs in alleviating poverty in the developing countries arguing that their SAPs have in fact worsened the plight of poor people for two reasons, viz. economic growth did not trickle down to reduce poverty as envisaged (poor sensitivity of poverty to growth) and worse still the economic policies benefitted the corporates immensely (see Easterly 2003, 362; Comelo 1996). The critical fault of SAPs is the existence of inherent conflict between the institutions acting as both lenders and analysers (Van Waeyenberge and Fine 2011: 35). Even if the outcomes of SAP were to be different (i.e. adverse for the people and economy) from those expected or advanced by these agencies (i.e. benevolent outcomes like growth, employment and reduction in poverty), they would rather attribute the failures to other sources and one of them being labour market inefficiencies caused by labour institutions.
Since 2003, the World Bank has been conducting the ease of doing business (EODB) exercise which measures various aspects of business regulation and their implications for establishment and operations of firms in a country and ranks the countries (190 or so) on their ease of doing business. Higher ranks indicate conducive regulatory environment for EODB (World Bank 2017). The countries are ranked on each of the indicators like starting the business, enforcement of a contract, etc., while the overall ranking of the economy is determined with appropriate weights for each of the indicators (see World Bank 2017, for further details). Earlier, the World Bank’s ranking exercise included ease of employing workers indicator (EWI) among the indicators of ease of doing business. However, International Labour Organization (ILO) and global trade unions like the International Trade Unions Council argued that EWI suffered from several conceptual shortcomings and further the ranking of EWI pressurizes the countries to flexibilize labour markets in a bid to achieve better ranking which leads to ‘race to bottom’; so they exerted pressure on the World Bank to stop ranking the countries on EWI (see Lee et al. 2009). Accordingly, the World Bank stopped ranking the countries on EWI though it continues to provide qualitative information on the labour law reform measures taken by the countries. The World Bank admits that its EODB exercise has made a significant impact on the government and we quote it: ‘Governments worldwide recognize the economic and political benefits of improved business regulation. In fact, 119 of the 190 economies measured by Doing Business 2018 enacted at least one business regulation reform in 2016/17’ (World Bank 2012; 2017, 1). For example, the NDA government in India celebrated as India climbed up from 113th to 100th rank in EODB in 2017 (see Narayan 2017).
Policy makers and lobbyists have been greatly swayed by this relative ranking exercise of countries, and it has led to even undesirable policy outcomes with respect to labour market (see ILO 2007). In India, as elsewhere employers have been exerting tremendous pressure on the government to deregulate labour market and bring about extensive neoliberal reforms by amending many of the labour-protective laws and liberalizing labour inspection and labour administrative systems (see Shyam Sundar 2018, for a comprehensive coverage and discussion of the reforms). In fact, to achieve better ranking in the EODB, the Department of Industrial Promotion and Policy, Ministry of Commerce, Government of India have introduced EODB ranking of States and the Union Territories (UTs) in India (see http://​dipp.​nic.​in/​ease-doing-business-reforms, accessed on September 23, 2018, for details regarding its EODB exercise; see also Shyam Sundar and Sapkal 2017 for a critique of these exercises). The States and the UTs compete vigorously to get better ranking and in fact controversies surround such ranking exercise (see, e.g., Sushil Rao 2018). Such is the power of Ideas.
These exercises are based on neoliberal perspective. The neoliberal perspective argues that a free market economy (i.e. without regulations) will enhance competitiveness of firms and economies and this will create a conducive business climate and macroeconomic stability and this in turn will attract foreign investment into the country. Foreign investment is a panacea for capital-starved developing countries and as investment boosts will produce jobs, income and hence reduction in poverty. Hence, countries with less burdensome regulations or employer-friendly regulations are more likely to grow faster (see, e.g., Natarajan and Raza 2017). Rigid labour markets will produce adverse labour market outcomes like low productiv...